Ask Ric: What’s the Outlook for Bonds in My Portfolio?

A 55/45 Portfolio May Need to be Rebalanced, Depending on Your Time Horizon

Joel from Long Island: I've been a huge fan of yours for decades, having read most of your books and seen and heard all of your shows, thank you so much for everything that you've done with regard to a typical portfolio and retirement of, say, 55 percent equities and 45 percent bonds. How do you suggest one handles the bond portion of the portfolio going forward? We are still looking at a 30 year time horizon, so should we continue to rebalance with this in mind? Or do you foresee other long term changes in asset allocation for people in retirement? Furthermore, I know you're very bullish, perhaps with regard to cryptocurrency. Do you truly see a place in cryptocurrency in a retirement portfolio of even one percent? I'm anxious to hear your reply. Thank you so much for your time.

Ric: Joel, thanks for your questions and your kind words as well. I'm very negative on the bond market these days. I think everybody is for the simple reason that interest rates are very low and rising, and as interest rates go up, the value of bonds goes down. Now, if you have a 30-year outlook, glad that you do. You could argue that this too shall pass over 30 years. It's reasonable that interest rates may return to where they were, but is that reasonable? Interest rates never hit as low as they did in the past 10 years. If interest rates never go back down to where they were, then the bond prices will never go up to where they were.

In other words, the losses that exist in the bond market, the losses that may yet occur from further increases in rates could become permanent. So I'm not sure if it is worth to keep long-term bonds in a portfolio right now, especially since further losses are anticipated due to further increases in interest rates. I don't know what you should do other than talk with your financial advisor about it. I can tell you what I'm doing. I don't own any bonds. Jean and I got rid of all of ours because we just don't see how the case is justified, not only from the risk of loss, but from the incredible low return that they're probably going to deliver compared to other asset classes over the next five, 10, 20 years, particularly not just the broad stock market, but more specifically exponential technologies and even more specifically than that, blockchain and digital assets.

The One Percent Allocation in Crypto Assets

So for all those reasons, I'm not sure that it makes a huge amount of sense. There are other ways to get income producing investments into your portfolio that are at least as good as the prospects that you might get from the bond market. There are so many income building strategies. Any good financial advisor should be able to relate all of that to you based on your circumstances. As for crypto, as part of your retirement portfolio? Sure. A one percent allocation, I think, makes a great deal of sense, regardless of age. This is the newest asset class, the first new one since oil was discovered in Texas in the 1850s. So sure, adding one percent, maybe two percent of a portfolio to this asset class. I don't see any reason why not to do that. So, talk with your financial advisor to see what is applicable makes most sense and is in your best interest for your circumstance.

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